3/24/2009 @ 12:20PM

Street On Hold After Jump

Lawmakers critiqued calls from the Treasury and Federal Reserve for sweeping powers to counter systemic risk to the financial system, and U.S. stocks took a break after a huge rally Monday.

In a House Financial Services Committee hearing dedicated to the government’s handling of
American International Group
, Treasury Secretary Tim Geithner called for oversight powers, similar to those the FDIC has for banking institutions, that would provide for regulation over firms whose collapse would pose substantial risk to the government financial system. Fed Chairman Ben Bernanke said the AIG saga highlights the need for procedures to safely wind down companies that are systemically critical.

While the hearing drummed up the debate over regulatory oversight in the financial sector, investors took their foot off the gas on Wall Street. A day after details of the Treasury’s latest plan to revive the banking sector revved up the market, investors seized on the opportunity to snag profits from the advance.

Tuesday’s drop was mild though, an encouraging sign that recent gains may be more than a sucker’s rally in a bear market. The S&P 500 stayed above a key support level of 804, slipping 10 points, or 1.2%, to 813. The Dow Jones industrial average was down 74 points, or 1.0%, to 7,702, and the Nasdaq dipped 28 points, or 1.8%, to 1,527.

Bank stocks retreated after pacing Monday’s gains, but the industry moved off its loans and the declines were not universal. The
SPDR KBW Bank
exchange-traded fund, which tracks a key banking index, was down 42 cents, or 2.7%, to $14.89; but
Goldman Sachs
was up $1.78, or 1.6%, to $113.71, outperforming its rivals. Reports suggest the firm could repay its Troubled Asset Relief Program loans even quicker than anticipated, and could sell part of its stake in Industrial & Commercial Bank of China to do so, according to TradeTheNews. Goldman President
Gary
Cohn
Gary Cohn
said repayment probably will not come until after the government completes its bank stress tests. (See “Goldman Looking To De-TARP.”)

Bank of America
was 17 cents lower, down 2.2%, to $7.63, as Chief Executive
Ken
Lewis
Ken Lewis
comes under fire. A shareholder that owns a small stake in the firm is trying to oust Lewis, the chairman, and two other directors from the bank’s board, charging they misled investors during the acquisition of Merrill Lynch.

Treasury prices dipped, with yields on short- and longer-term government debt inching higher. The two-year note returned 0.92%, up from 0.90% Monday, with the Treasury set to announce the results of a $40.0 billion auction Tuesday afternoon. The benchmark 10-year note yielded 2.71%, from 2.66%.